Living Economics: What is Economics?

*The game referenced in this article is ‘The Tribez‘ offered by Game Insight UAB.

Economics is ultimately the study of how and why people, organizations, and governments create, gather, trade, and divide resources. The study of resource management – taking the resources we have and creating new value.

Economics is the study of how and why people, organizations, and governments create, gather, trade, and divide resources.

Resources include anything (air, wood, money) that people use to facilitate their lives or work.

Despite the popular tendency to equate economics and business, the terms are not mutually exchangeable. Business focuses on maximizing the welfare of the company and its investors through profitability; however, the primary goal of economics is to maximize the happiness of the public.

“The primary goal of Economics is to maximize the happiness of the public.”

Theoretically, the easiest way to satisfy the happiness of the people is by ensuring equal resources owned by all. However, happiness is both complex and subjective. Ice cream that satisfies Tom, may not satisfy Sunny with a dairy allergy. Provide neither with ice cream, and Tom is unhappy. Provide both, and resources are wasted on Sunny who cannot eat it.

If there were enough resources for everyone, we would be les concerned about those lost on Sunny. Unfortunately, most (if not all) resources are scarce: there is not enough of the resource for all desired uses. Not everyone can have what they want.

Most resources are scarce: there is not enough of the resource for all desired uses. Not everyone can have what they want.

Christmas Tree, Plant, Decorated, Decoration, Ornaments

After the Great Recession of 2008, Christmas spending declined and farmers began producing fewer Christmas trees. Consequently, in 2019 there were not enough Christmas trees for all potential buyers (Pesce, 2019). Christmas trees (like many natural resources) can take months to years to produce and quick replenishment during a shortage may be impossible. Because Christmas Trees are scarce, economists seek to predict how to divide them amongst the public in the way that maximizes usefulness. If not everyone can have a tree (equal division is impossible), what do we do?

Scarcity becomes even more complex where businesses are involved. Providing all companies with identical resources would be wasteful at best and disastrous at worst. For example, Gold is both highly desirable and incredibly scarce; waste must be minimized. To offer gold to all companies (including those who never use it) is unreasonable. Materials (lumber, gold, copper) are scarce. How do we divide our resources among companies and customers given that equal division is impractical and potentially impossible?

It is the economist’s job to find new ways to use the current resources so as to create maximum value for society. This requires greater efficiency – maximizing the benefits and minimizing the cost of each resource consumed.

The more efficiently resources are used, the more resources become available for new or alternative uses and scarcity declines.

Given our general inability to read minds, we do not try to predict what precisely each individual needs to be happy. Instead economists seek to ensure that:

  • 1) We maximize the creation of resources (natural or man-made) to minimize scarcity
  • 2) We gather resources into the most efficient locations where and when need is highest (e.g. Beach Towels by the beach and Warm Coats in the winter).
  • 3) We trade resources effectively and efficiently with minimal loss and providing resources to those who value them the most.
  • 4) We divide resources internally fairly and effectively.

With the proper economic systems in place, individuals themselves can ideally choose and select the resources that make them happy.

Three key producers and consumers of resources are the public, companies, and the government.

Macroeconomics examines the bigger picture, assessing how countries and governments create, gather, trade, and divide national resources domestically and internationally. A country’s unique system of managing resources is called their economy. Each country has its own ideals about how the economy should work. The global economy is a much larger, intricate system wherein countries and forces interact – either cooperating or competing in the management of resources internationally.

Microeconomics hones into the details, analyzing how individuals and companies interact and facilitate the creation, gathering, trade, and division of resources.

Jason has discovered a farm that creates four key resources: lumber, rocks, grass, and (if he finds the hidden treasure chest) silver keys.

Gathering each resource requires labor and energy. Like all people, the more Jason works farming, the more tired he becomes. If he uses too much energy, he will have to rest one hour to get more. Naturally finding the silver key would take more energy.

After examining his situation, he discovers a problem: he needs these resources for two jobs:

  • To repair the campsite which then produces one new resource each hour.
  • To repair the bridge which opens up a new farm with other resources.

Unfortunately, the farm currently only has enough materials and resources to do ONE job. It is not possible to do both with the materials on hand at our current farm.

In this case, Jason much choose how to use his resources where the materials are scarce.

  • Focus on the option that consumes the fewest resources?
    • Campsite requires an extra key, but the Bridge requires more wood.
    • Bridge requires less grass, the campsite requires less stones
  • Focus on the Campsite because it provides indefinite new resources (one per hour)?
  • Focus on the Bridge because it will open a whole collection of new resources immediately?

Although this comes from a PC game, these are the kinds of questions economists examine every day. How should resources be used so that we maximize our benefits?

In general, we are have two targets:

  1. To become more profitable – to create new value from old resources and new resources altogether.
  2. To become more efficient – to maximize the use from each resource such that there is maximum benefit at minimum cost.
EconomicsThe study of how and why resources are created, gathered, traded, and divided.
ResourcesMaterials that are used to facilitate life or work.
EqualityTo manage resources so that each user has identical resources
EfficiencyTo manage resources so that each resource is used for maximum benefit and minimum cost.
ScarceThe situation where there is not enough of a resource to satisfy all desired uses.
MacroeconomicsThe study of how and why countries and governments create, gather, trade, and divide their resources domestically and internationally
MicroeconomicsThe study of how and why individuals and companies interact and facility the creation, gathering, trade, and division of resources
EconomyA country’s unique system of combining governmental, corporate, and individual factors in managing its resources
Global EconomyThe global system wherein companies cooperate or compete in managing resources internationally.
ProfitableTo create new value from old resources and new resources altogether.

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